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The U.S. Federal Reserve has taken aggressive steps to tame inflation, including hiking interest rates to multi-year highs. Rising interest rates are a negative headwind for many sectors including Real Estate Investment Trusts, or REITs.

However, one specific area of REITs that continues to have a positive outlook is apartment REITs. Demand for housing, particularly apartments, has remained strong in many U.S. markets. As a result, these 3 apartment REITs have long-term growth and attractive dividends.

Mid-America Apartment Communities (MAA)

Mid-America Apartment Communities (MAA) is a real estate investment trust (REIT) that owns, operates and acquires apartment communities in the Southeast, Southwest and mid-Atlantic regions of the U.S. Founded in 1977, it currently has ownership interest in 101,986 apartment units across 16 states and the District of Columbia. MAA aims to offer superior returns to its shareholders by focusing on the Sunbelt Region of the U.S., which has exhibited superior population growth and economic growth in the long run.

In late April, MAA reported (4/26/23) financial results for the first quarter of fiscal 2023. The company continued to recover from the pandemic, with hardly any signs of fatigue. Its same-store net operating income grew 12.5% over the prior year’s quarter, partly thanks to 8.6% growth in average rent per unit in new leases. Core funds from operations (FFO) per share grew 16%, from $1.97 to $2.28, thus exceeding the analysts’ consensus by $0.03. MAA has missed the analysts’ FFO estimates only once in the last 20 quarters.

Thanks to strong business momentum, management slightly improved its guidance for 2023. It raised its guidance for core FFO per share from $8.88-$9.08 to $8.93-$9.29, implying 7% growth at the mid-point. MAA stock currently yields 3.6%.

Equity Residential (EQR)

Equity Residential is one of the largest U.S. publicly-traded owners and operators of high-quality rental apartment properties with a portfolio primarily located in urban and dense suburban communities. The trust’s properties are located in affluent areas around Boston, New York, Washington, D.C., Southern California, San Francisco, Seattle, and Denver.

Equity Residential announced its financial results for the first quarter on April 25th, 2023. The company's Q1 FFO of $0.87 missed estimates by $0.01, but revenue of $705.09M beat estimates by $3.1M. Same-store revenue increased 9.2% YoY due to continued healthy demand and lower-than-anticipated bad debt. The company sold a small portfolio of seven properties in Los Angeles for approximately $135.3 million and purchased a 262-unit apartment property in Atlanta for approximately $78.6 million. The company raised its annual common share dividend by 6.0%.

Equity residential properties are located in some of America’s most affluent markets, which results in relatively robust rental collections due to the high quality of the trust’s tenants. Additionally, these locations have consistently seen increasing pricing trends.

Moreover, EQR’s balance sheet is quite strong and its payout ratio is quite conservative at current levels. As a result, its dividend should be sustainable through an economic downturn and the REIT will likely be able to continue growing its dividend for the foreseeable future. The stock currently yields 4.0%.

UDR, Inc. (UDR)

UDR, Inc., also known as United Dominion Realty Trust, is a luxury apartment REIT. The trust owns, operates, acquires, renovates, and develops multifamily apartment communities in high barrier-to-entry markets in the US. The majority of UDR’s real estate property value is established in Washington D.C., New York City, Orange County, California, and San Francisco. As of March 31st, 2023, UDR owned or had an ownership interest in 58,411 apartment homes, 415 of which are homes under development.

UDR reported first quarter 2023 results on April 26th, 2023. The company announced adjusted funds from operations of $0.57 in the first quarter, up 12% year-over-year compared to $0.51. The AFFO payout ratio for the quarter of 74% is quite safe for an REIT which must pay out the majority of its earnings to shareholders.

Physical occupancy of the real estate portfolio was down by 0.5% compared to the prior year period, to 96.6%. The trust reaffirmed guidance for 2023 and is estimating AFFO of $2.22 to $2.30, for a midpoint of $2.26. The company also anticipates 6.75% growth in same-store revenue, 4.75% growth in same-store expenses, and 7.5% growth in same-store net operating income over 2022.

UDR aims to grow AFFO by maximizing revenue by balancing blended lease rate growth against active occupancy management, improving cost controls through their Next Generation Operating Platform (NGOP). Additionally, UDR targets generating 10% to 15% higher NOI growth than the market over the first three years of ownership following its acquisitions.

UDR has rewarded shareholders with strong dividend growth. On February 6th, 2023, UDR increased its quarterly dividend by 10.5%, representing the company’s 12th consecutive annual dividend increase. UDR stock yields 3.9%.

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